Kingfisher beer maker UB suspends supply to Telangana; association alleges state pays 47% less than other states

The company in its BSE filings said it had decided to suspend the supply of its beer to Telangana Beverages Corporation with immediate effect as the corporation had not revised the basic price of the company’s beer since FY20, resulting in ‘escalating losses’ in the state and significant overdues remaining unpaid by them for the past supply of beer by the company.

TGBCL is a government-run organisation with exclusive control over the sale of alcohol in both retail and wholesale sectors within the state. It was formed in 2014 following its separation from the Andhra Pradesh Beverages Corporation Ltd.

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In a media statement, UBL said it had a fiduciary responsibility to stakeholders, noting that continuing to sell beer at a loss was no longer sustainable. The company said advocacy body Brewers Association of India (BAI) which represents it has made multiple representations to the Telangana government, urging them to take a price hike to offset inflationary pressures on the industry but that no resolution had been reached so far.

By the end of the day's trade, the company's share price had fallen 4.1% to ₹1,990.50.

Many representations

Mint has accessed the letter shared by the association sent to the excise department and chief minister of Telangana on 19 November. The apex body of the beer industry which represents UB, Corona and Hoegaarden maker AB InBev and Carlsberg India, said the companies it represents account for 85% of the beer sold in India and that its members have invested in five production facilities in Telangana and contribute tax revenues of ₹6,500 crore to the state annually.

The letter added: "The basic prices allowed to beer supplier companies in Telangana are based on 2019 costs submission. Since then, the cost of production has gone up by 35-40%. However, the government has not allowed a basic price revision to compensate for the increase in cost of production. This has made operations in Telangana commercially unsustainable and has made any future investments unviable."

'Just ₹290-315 per case in Telangana'

The letter said Telangana offers nearly 47% lower prices per case to beer makers, anything between ₹290-315 per case as compared to states like Karnataka and Maharashtra. It compared the average basic price range of major states and said that a case of beer (of 12 cans of 650 ml each) costs ₹550-600 in Karnataka, like Maharashtra. Tamil Nadu and Kerala pay between ₹430-460 per case, much like Andhra Pradesh. Representatives of BAI were not immediately available to offer an updated comment for the story till time of press.

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Analyst Abneesh Roy, executive director at institutional brokerage Nuvama Institutional Equities, said that the company is likely experiencing negligible profits from Telangana, as the company has not raised prices in the state for the last four years, despite rising inflation in materials like glass and barley, alongside increasing staff costs.

"It is difficult to say how long this will take, but this is a bold, aggressive step by the new managing director, Vivek Gupta. The company holds a 70% market share in Telangana, with approximately 13-14% of its volume coming from the state, so a near-term loss in market share is expected. However, it remains to be seen how much of this can be offset by shipments from neighbouring states, as liquor remains accessible even in places with prohibition like Gujarat and Bihar," Roy said. 

Prices are hiked, he said, generally every 2-3 years, but they have not happened for the last four years. "While the short-term outlook for UBL appears negative, the long-term effect could be positive if the company successfully negotiates price increases and improved payment terms," he added.

The company also highlighted its annual contribution of over ₹4,500 crore to Telangana’s state revenue and called on the government to take swift action to ensure the financial sustainability of operations and the continued availability of their products in the state.

“Raw material prices in the beer manufacturing business have gone up significantly over the last few years and have not kept pace with the price hikes given by some states to alcohol manufacturers. Businesses will find it harder to continue and state governments need to understand what manufacturers are going through. We have urged a lot of states to at least adjust prices to the year-on-year inflation," Devans Modern Breweries’ chairman and managing director Prem Dewan told Mint.

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At the end of the quarter ended 30 September, the company had a consolidated revenue from operations of ₹4,743.5 crore, growing over the same period in FY24 when it reported ₹4,192.8 crore.

Its profit for the period was ₹132 crore, which grew over FY24's corresponding quarter by 23% over ₹107 crore.

The Brewers Association has estimated that India's beer market has a size of about 425 million cases, of which craft beer accounts for about four million cases.